SHILLING: Experts Forecasting Eras Of Low US Economic Growth Have Been Wrong Since At Least 1843

In his latest Bloomberg View columns, economist Gary Shilling
takes issue with peers like Carmen Reinhart, Kenneth Rogoff,
Larry Summers, and Robert Gordon that have warned about slowing
U.S. economic and income growth.

Shilling share a great quote that was wildly wrong: "In his 1843
report to Congress, Patent Office Commissioner Henry Ellsworth
said: 'The advancement of the arts, from year to year, taxes our
credulity and seems to presage the arrival of that period when
human ingenuity must end.'"

He argues that despite federal government debt and deficits
acting as a major drag on growth, "there is a strong possibility
that government debt relative to gross domestic product will fall
appreciably, as it did after World War II."

Shilling disagrees with the "Reinhart-Rogoff argument — that high
government debt depresses GDP — my view is that government debt
doesn't depress economic growth, as they contend, but the other
way around."

He also takes issue with Northwestern University economics
professor, Robert Gordon's view that everything worth inventing
has already been invented.
From Shilling:

"I believe much of today’s new technology -- the Internet,
biotechnology, semiconductors, wireless devices, robotics and 3-D
printers -- is in its infancy. Collectively, they have the
potential to rival the rapid growth and productivity-generating
effect of the American industrial revolution and railroads in the
late 1800s. Mass-produced autos and the electrification of
factories and homes, which led to electric appliances and radio
in the 1920s, offer yet more examples. Today, only a third of the
world’s population is connected to the Internet but 90 percent
live within range of a cellular network.

"Sure, productivity (output per hour worked) grew by only 1.5
percent from 2009 to 2012, but that’s normal after a severe
recession. I expect it to return to a 2.5 percent annual growth
rate -- or more -- after deleveraging is completed in another
four years or so. Even in the 1930s, productivity averaged 2.4
percent a year, higher than in the Roaring '20s. In the 1930s,
much of the new technology from the 1920s -- electrification and
mass production -- was adopted despite the Great Depression.

"Rapid productivity growth offsets slower labor force advances.
The decline in the labor-force participation rate is likely to
slow in coming years once normal economic growth resumes. The
rate has fallen as baby boomers retire and discouraged workers
drop out of the labor market or stay in college."

Shilling expects that once private sector deleveraging is
finished, real GDP growth will return to about 3.5% or more. He
also thinks "the slow-growth-forever crowd will need to find a
new theory."

Gary Shilling of course is known to be fairly bearish. His
monthly
Insight newsletter reminds us of the prevailing 'risk on'
climate we see "despite the many warning signs related to
economic growth and financial markets here and abroad."